With the recent hikes of petroleum prices in the country, year-on-year inflation is expected to rise further over the coming months. It is inevitable that the fuel price increases will have a severe impact on both food and non-food inflation in the Consumer Price Index (CPI) basket.
“The March fuel price increase will have a severe impact on spending patterns, even on food, as consumers spend less and move to cheaper alternatives. Additionally, developments in Central Europe will also have a major impact on the prices of some major commodities as both Russia and Ukraine are big exporters of these commodities. This will put pressure on local prices,” says Dominic Adu, Chief Executive of First National Bank Ghana.
“We anticipate an upward trend in the Consumer Price Index (CPI) and food inflation in the short-term. The fuel price remains the main driver of higher costs going forward,” he added.
The latest forecast shows that inflation will likely remain above target in the near-term, driven by both external and domestic factors, and only return to the target band in about four quarters ahead. The key risks to the inflation outlook include rising crude oil prices and its transmission to ex-pump petroleum prices and transportation costs, rising global inflation, food price uncertainties and the fiscal outlook.
The Monetary Policy Committee of the Bank of Ghana maintained the policy rate at 14.5 percent in January 2022, in an attempt to stem the rising inflation. Ghana’s inflation rate for February reached 15.7 percent, the highest in six years, according to figures released by the Ghana Statistical Service.
The increase has been attributed to rising prices in utilities (water and electricity) and transportation. The contribution of housing, electricity and gas to overall inflation increased by 4.6 percentage points from 17.5 percent recorded in December 2021 to 22.1 percent in January 2022. Month-on-month between December 2021 and January 2022 inflation was 2.1 percent. For the first time in seven months, non-food inflation exceeded food inflation (14.1 percent versus 13.7 percent respectively).
On the month-on-month basis, non-food inflation also exceeded food inflation in January 2022 by 0.2 percentage points (2.2 percent vs. 2.0 percent). Housing and Transport (which includes fuel) once again were the two sectors that recorded the highest inflation (28.7 percent and 17.4 percent respectively).
On the regional front, Greater Accra has regained its lead in overall inflation, with the Upper West Region recording the highest food inflation. The latest development in Ghana’s inflation is likely to pressure the Bank of Ghana to review its policy rate upward in the coming months.
“In the 2022 budget, government used US$60 per barrel for the projection of its revenue, but as of now the crude oil price on the international market is hovering around US$120 per barrel: which means our oil revenues will double going forward, so government can use the windfall profit to cushion other sectors of the economy,” Mr. Adu added.